Commentary by Michael Wade on Leadership, Ethics, Management, and Life

Monday, December 01, 2008

The Murder of Mervyns

Writing in Business Week, Emily Thornton describes what happened to Mervyns. An excerpt:It didn't have to be this way. Mervyns, a midrange seller of apparel, housewares, and other department-store fare, might have weathered the economic storm that's battering so many of its rivals. Much of the blame for its demise lies with three private equity titans: Cerberus Capital Management, Sun Capital Partners, and Lubert-Adler.

When those firms bought Mervyns from Target (TGT) for $1.2 billion in 2004, they promised to revive the limping West Coast retailer. Then they stripped it of real estate assets, nearly doubled its rent, and saddled it with $800 million in debt while sucking out more than $400 million in cash for themselves, according to the company. The moves left Mervyns so weak it couldn't survive.

These companies might as well be categorized as pirates. They plunder all the value out of their victim... er investment. It feels wrong, but then I don't know that they are doing anything wrong as they are hyper-short-term to milk out as much profit with the probably expectation that they are going to kill the company.

It is sad when you think about what happens to the people that work for these companies, of course I am sure there are happy people that receive profit from these pirates - still, there has got to be something wrong in all of this.

This is similar to what's being done now to Sears. I expect to hear the same news about them shortly.

The corporations investing in these large retail firms are doing so for the underlying value of the real estate, as has been pointed out. They don't know a thing about running a retail company. Employees need to watch out for themselves.